We have found the wall – what next?

28 July 2008

IMMEDIATE RELEASE

We have found the wall – what next?

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during July 2008, shows total sales in June 2008 increased 3.79% (export sales increased by 39.6% with domestic sales decreasing 14.7%) on June 2007.

The NZMEA survey sample this month covered NZ$566m in annualised sales, with an export content of 46%.

Net confidence dropped to -55, down from the -40 result reported last month.

The current performance index (a combination of profitability and cash flow) is at 93, down from the previous month’s 100, the change index (capacity utilisation, staff levels, orders and inventories) went down to 99 from 100 last month, and the forecast index (investment, sales, profitability and staff) is at 98, down on the previous month’s result of 101. Anything less than 100 indicates a contraction.

The reported constraints were: 9% capacity, 9% staff and markets 82%.

Staff numbers for June increased year on year by 1.05%.

“The numbers in the survey and the comments from manufacturers and exporters all reference a slow down or weakness in forward demand and current performance. Domestic demand has dropped away but has been propped up by higher export sales. Across the board rising costs are eating away at margins,” says NZMEA Chief Executive John Walley.

“The low returns, a lower backlog of forward orders, slow payment, and an all round nervousness about cash-flow have seen confidence drop further. For the first time in some years all three composite indicators are in contraction territory and future indications are all negative.”

“The interest rate cut and the fall against the US dollar happened after we closed this survey. A more realistic exchange rate should herald some improvement in returns once any higher forward cover works through. Demand will be the constraint, as markets indicate a reducing tolerance to risk and consumers tighten their belts.”

“In a world of cost driven inflation we need to shift our attention away from the interest rate, the “brakes” of the economy, and work out how to make the supply side, the “engine”, more productive. Lifting activity and productivity in the real economy is the only way forward. Our policy framework needs to be aligned to the new world dynamics of fussy credit, slow demand and high commodity prices.”

See... Survey Results (PDF)

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